Alcoa Sells Chalco Stake for $2 Billion

Alcoa Inc. (AA ), the biggest U.S.-based aluminum producer, has sold its nearly 7% stake in China's largest aluminum maker for $2 billion.
The Pittsburgh-based Alcoa sold its interest in Aluminum Corporation of China Ltd., also known as Chalco (ACH ), for the equivalent of $2.23 a share, a 15% discount to the closing price yesterday (Wednesday) on the Hong Kong Stock Exchange. Alcoa had been an investor in Chalco since the Chinese company's initial public offering (IPO) in 2001. Its initial investment was less than $200 million.

The shares were marketed in Hong Kong and Europe and purchased by 20 to 25 major institutional buyers, according to Alcoa spokesman Jake Siewert. The sale was handled by Goldman Sachs Group Inc. (GS ).

"We normally do not act as financial investors, but we participated in the Chalco IPO six years ago to help facilitate its entry into the capital markets," Alcoa's chairman and chief executive, Alain Belda, said in a statement. "Over the past seven years, Chalco has become firmly established in the equity market, so our role as a financial investor is no longer needed, and we can redeploy our capital into other value-adding options, including projects in China."

With output at 9.3 million tons of primary aluminum in 2006, up from 3.4 million tons in 2001, China is both the world's biggest producer of and biggest consumer of aluminum.

Alcoa said it would continue to invest in China's aluminum industry. It made its first China foray in 1993, opening offices in that country, and now makes such products as fasteners, aluminum foil, automotive parts, and other products, too.

According to CNNMoney.com, Alcoa said it was spending $300 million to expand its Bohai rolling mill in Qinghuangdao, a coastal city east of Beijing. It also has formed several joint ventures in China in recent years, as part of an effort to expand its presence there.

Alcoa's commitment to China has "never been stronger," Belda said.

Charles Bradford, an industry analyst with Bradford Research/Soleil Securities in New York, told CNNMoney.com that "frankly, owning 6.9% or 7% of a venture really doesn't do them any good," he said.

Alcoa has an ongoing share buyback program and has outlined plans to maintain its debt-to-capital ratio and invest in other projects in China and elsewhere.

Alcoa has 116,000 employees in 44 countries. It was the world's largest aluminum producer until earlier this year, when it was surpassed by United Company Rusal, a Moscow-based producer that was formed via a merger that brought three separate companies together into one.

Back in May, Alcoa launched a hostile takeover bid for Alcan Inc.(AL ), its Canada-based rival. The deal would have vaulted Alcoa back into the No. 1 position. But Alcoa dropped its offer after mining giant Rio Tinto PLC (RTP ) entered a much-higher friendly bid.

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